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Financial Market Equilibria with Cumulative Prospect Theory

The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. The reason is an infinite short-selling problem. But even when a short-sell constraint is added, non-existence can occur due to discontinuities in agents' demand functions. Existence of equilibria is established when short-sales constraints are imposed and there is also a continuum of agents in the market